California utility PG&E calls in debt restructuring lawyers - sources

(Reuters) - PG&E Corp has hired law firm Weil, Gotshal & Manges LLP to explore debt restructuring options, people familiar with the matter said on Tuesday, as California’s biggest utility grapples with liabilities stemming from last year’s wildfires in the state that analysts estimate could exceed $8 billion (£6.1 billion).

On Wednesday, PG&E shares dropped as much as 4 percent on the news and were last trading at $42.28, down 1.8 percent.

PG&E has already recorded a $2.5 billion pre-tax charge in its second-quarter earnings, after California officials blamed its power lines for sparking the deadliest firestorm in the state’s history last autumn. The blaze killed 46 people, scorched 245,000 acres (99,150 hectares) and destroyed 8,900 homes.

One of the options PG&E is considering is breaking up the company, so that only one division files for bankruptcy, thereby sheltering the remainder, the sources said. No decision on a course of action has been taken, the sources added.

Investment bank Lazard Ltd is also advising PG&E on its debt restructuring options, the sources said.

The sources asked not to be identified because the deliberations are confidential.

“As a matter of general practice, we do not comment on market rumours,” PG&E said in a statement.

“To be clear, without reform, the current situation is not financially sustainable over the long term and our focus continues to be on communicating the urgent need to find policy solutions that protect victims, protect customers and protect the state’s climate and clean energy goals by keeping the state’s utilities financially viable,” the company added.

Weil, Gotshal & Manges did not respond to a request for comment. Lazard did not immediately respond to a request for comment.

Headquartered in San Francisco, PG&E provides electricity and gas to almost 16 million people in Northern and Central California, according to its website. The company has a market capitalization of $22 billion and long-term debt of $17.6 billion.

PG&E faces regulatory curbs on how much it can charge consumers, restricting its ability to make up for losses through rate hikes.

The company has received some 200 legal complaints related to the fires on behalf of at least 2,700 plaintiffs, and could be the subject of related investigations, it said in a regulatory filing in June.

PG&E is no stranger to financial engineering when dealing with difficult situations. During California’s energy crisis in 2001, it placed its Pacific Gas and Electric utility unit into bankruptcy.

Hiving off part of a business to insulate the rest from liabilities is a popular strategy for companies seeking to reorganize and deal with financial struggles. Offshore driller Noble Corp Plc, for example, spun out its standard specification drilling business, Paragon Offshore Plc, in 2014, ahead of the energy downturn. Paragon later filed for bankruptcy.

Last week, PG&E reported second-quarter net losses of $984 million, compared with net income of $406 million a year ago, as it struggled with the financial fallout of the wildfires.

Reporting by Jessica DiNapoli and Liana B. Baker in New York; Editing by Peter Cooney and David Gregorio